- Court cases show the difficulty for trustees when a deed is lost
- Investment strategies, tax concessions at risk if written strategy is missing
- Trustees should consider an independent, digital vault to protect their deed
Trusts are most commonly established by a deed. Those deeds contain the terms or rules that control how the trust can be used, and the rights and duties the various parties to the trust have or owe. In our experience, trust deeds are regularly misplaced and lost.
A lost deed poses numerous problems, two of which are particularly worth noting:
First – trustee has responsibility to know terms of trust deed (equitable duty)
The trustee of a trust is under an equitable duty to know the terms of the trust that they manage. This may not sound like an issue for the pragmatic investor who simply uses their trust as an investment mechanism or for concessional tax outcomes. But Courts have shown little reluctance in concluding that a trustee does not know the specific terms of the trust when the deed has been lost.
A fairly recent example can be seen in the case of Jowill Nominees Pty Ltd v Cooper [2021] SASC 76. The Court held that it is very difficult for a trustee to discharge their duty to know and manage the trust when they don’t have a copy of the governing rules of the trust.
Second – can a trustee prove the original trust deed ever existed?
If the original deed is lost, then it may be difficult to prove that the trust exists at all. This was the case in Mantovani v Vanta Pty Ltd (No 2) [2021] VSC 771. In that case, the trust deed had been lost and there was not enough secondary evidence to show that the trust was in existence. By secondary evidence, we mean documents and dealings that clearly showed the identities of the beneficiaries, the property of the trust, and the nature of the trust (i.e. fixed, discretionary, SMSF, etc).
The Court held that the trust failed due to uncertainty, which means that without the trust deed the terms of the trust, and the parties to the trust, were unknown. This was arguably the better outcome for the trustee; had the court found that there was a trust then, pursuant Jowill above, the trustee might have been found to have breached their duty to the trust by not knowing the terms of the trust.
In Vanta, the Court then confirmed that a failed trust automatically gives rise to a resulting trust. A resulting trust means that the trustee holds the property on trust for the settlor. This means that the property of the trust ‘revests’ (effectively returns) to the person who contributed that property (i.e. an equitable interest returns to the settlor), rather than the beneficiaries.
This probably wouldn’t be a problem if the settlor still wanted to establish a trust with that property for the beneficiaries; but if the settlor had passed away, for example, then that property would go into their estate and be dealt with by the executor. There is material risk that the executor would not consider the trust beneficiary’s interest as relevant. And that’s not to mention the catastrophic tax consequences that could flow as a result of such a revesting.
Safety in scanning and holding trust deed in a digital vault
The importance of safely keeping the original establishment deed of a trust cannot be overstated, and yet deeds are lost with surprising regularity. Losing the deed can have deleterious consequences for both the trustee and the beneficiaries.
All deeds should be scanned as those electronic copies may be invaluable if the original is misplaced. Our sister company, SuperCentral, offers advice and services relating to lost deeds and an independent digital vault for scanned copies.
Peter Townsend
Principal
Townsends Business & Corporate Lawyers
02 – 8296 6266
Mobile 0419 44 88 44
peter@townsendslaw.com.au
www.townsendslaw.com.au